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Public pension accounting rules and economic outcomes

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Listed:
  • Naughton, James
  • Petacchi, Reining
  • Weber, Joseph

Abstract

We find a negative association between a state׳s fiscal condition and the use of discretion in applying Governmental Accounting Standards Board (GASB) rules to understate pension funding gaps. We also find that the use of discretion is negatively associated with states’ decisions to increase taxes and cut spending. In addition, we find that the funding gap understatement is positively associated with higher future labor costs. Importantly, this association is primarily attributable to the GASB methodology, which systematically understates the funding gap. This suggests that the GASB approach is associated with policy choices that have the potential to exacerbate fiscal stress.

Suggested Citation

  • Naughton, James & Petacchi, Reining & Weber, Joseph, 2015. "Public pension accounting rules and economic outcomes," Journal of Accounting and Economics, Elsevier, vol. 59(2), pages 221-241.
    • Handle: RePEc:eee:jaecon:v:59:y:2015:i:2:p:221-241
    DOI: 10.1016/j.jacceco.2015.02.002
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    Cited by:

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    2. Aleksandar Andonov & Joshua D Rauh, 2022. "The Return Expectations of Public Pension Funds," The Review of Financial Studies, Society for Financial Studies, vol. 35(8), pages 3777-3822.
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    4. Nakhmurina, Anya, 2018. "Does Fiscal Monitoring Make Better Governments? Evidence from US Municipalities," Working Papers 284, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    5. Anne M. Garvey & Juan Manuel Pérez-Salamero González & Manuel Ventura-Marco & Carlos Vidal-Meliá, 2021. "From “Table 29” to the actuarial balance sheet: is it really that big a leap?," Documentos de Trabajo del ICAE 2021-05, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
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    7. Dambra, Michael & Even-Tov, Omri & Naughton, James P., 2023. "The economic consequences of GASB financial statement disclosure," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    8. Bagchi, Sutirtha & Naughton, James P., 2021. "Public-sector pension plans and the discount rate assumption: The role of political incentives," Economics Letters, Elsevier, vol. 204(C).
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    More about this item

    Keywords

    Public pension; Economic consequences of accounting rules; Real decisions;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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